INDEX Details

Certificate of the Company Executive Summary of the project About the Company Rationale of the study Research methodology 4 5 6 7

Page no

 Scope of the study  Objectives of the study  Methodology and field visits
Analysis of exports of chemicals to Australia Analysis of exports of food products to Australia Opening office in Australia Regulations by RBI Australian rules and regulations Findings , conclusion and recommendations Appendix 50 54 10 15 21

ACKNOWLEDGEMENT

The making of any project requires contribution from many people, right from inception till its completion. In this case also, there had been a few people who have made this happen. It was not only learning but also an enriching experience. I feel indebted and place my special thanks to Mr. Satish P. Bhise (General manager) for his active guidance, help, motivation and support throughout the training and project. I would like to express my gratitude to Mr. Kishor Sanghvi (Managing Director) for providing me the required inputs for the completion of the training and project and always being there every time needed and requiredfor guidance. I would like to express my gratitude to Our Dean Prof. (Col). A. Balasubrmanian and Dr. S.M Inamdar Director Balaji Institute of International Business for their cooperation and affectionate encouragement. Finally, this report would not have been possible without the confidence, endurance and support of my family. My family has always been a source of inspiration and encouragement in every field of life and it is due to them I am whatever I am today.

ATRAYEE CHANDRA

EXECUTIVE SUMMARY OF THE REPORT

The report presents the research titled Export activities in Zen Intratrade Pvt. Ltd.. The company has been involved in the imports of chemicals for more than a decade and now intends to diversify as exporters of both chemicals and food products. The research involves the collection of data from the organisations from where data of export/ import of the food products & chemicals could be received. Then the data collected was analysed to find out the scope of exports and at the same time information was being gathered by the researcher to know the formalities to be followed for opening a new subsidiary office for the company in Australia as the comp[any wanted to float its branch. In the past 3 years the quantity of chemicals exported to Australia had been quite less as compared to other countries though the trade activities between India and Australia had been increasing at a good pace. Therefore the company shall undergo market research to know the scope of exports in Australia. As far as the food products are being concerned the increasing trend of trade between Australia and India is a favourable indicator of the same. At the same time with the opening of office in Melbourne would give an additional support to the company in its business. Some of the recommendations that the researcher feels are as follows:Since the trend of exports and imports between India and Australia clearly reveal that Indias exports have been increasing at a good pace, therefore the company has a good scope of exports of food products to Australia. The GDP growth rate of India as of now is 7.4% as compared to the expected growth rate of 8%. Therefore it can be concluded that there is a possibility of more of Indian exports.

Since company is a new player in the export market therefore it should try to target those countries (in addition to Australia) where the company can incur more profits

ABOUT THE COMPANY

Zen Intratrade Private Limited is becoming a trusted name in the chemical field
since last 1 decade. The company has been dealing in wide ranging products supplying to the chemical industry at large. Its base in Mumbai has been a great advantage in reaching the customers with efficient services. Slow but steady growth has enabled the company to spread its wings in both Domestic and international markets. Our sourcing is done from reputable International quality suppliers like Mitsui Chemicals ink. - (Japan), Dainippon Ink. & Chemical - (Japan), Polimeri, Europe, SPA - (Italy).

GOAL :
Reach the newer heights in the Chemical Business Earning the Goodwill of the Customers as well as Suppliers carving our own niche in the Sphere of Chemical Activities.

POLICY :
Service the customers through transparent & fair business practices by keeping pace with the changing time to their satisfaction building reputation world-wide.We trust that our relentless efforts to serve the Chemical Trade would enable us to be your business associates developing into a long term relationship.

Services Engaged in :
Import & Export Stock and Sale High-Seas Sale Bulk Chemical Storage Un-interrupted Supplies

Rationale of the Study

Zen Intratrade Private Limited is becoming a trusted name in the chemical field since last 1 decade. The company has been dealing in wide ranging products supplying to the chemical industry at large. The company has been involved in imports of the chemicals from various countries.

The company now intends to expand the export activities by exporting more chemicals as well as diversifying its export acts in various food products. The target country so chosen by the company is AUSTRALIA.
.

RESEARCH METHODOLOGY
Every project work is based on certain methodology, which is a way to systematically solve the problem or attain its objectives. It is a very important guideline and lead to completion of any project work through observation, data collection and data analysis.

Scope of the study

Each and every project study along with its certain objectives also have scope for future. And this scope in future gives to new researches a new need to research a new project with a new scope. Scope of the study not only consist one or two future business plan but sometime it also gives idea about a new business which becomes much more profitable for the researches then the older one. Scope of the study could give the projected scenario for a new successful strategy with a proper implementation plan. Whatever scope I observed in my project are not exactly having all the features of the scope which I described above but also not lacking all the features.

Objectives of the study

The specific objectives entrusted for the project report on export promotion of chemicals and food products from India are as follows: To prepare a detailed report on export promotion from India To identify the constraints in the export promotion to Australia To identify the scope of food items to be exported To study the existing arrangements for the present export of products To identify constraints in profitability
7

To identify and suggest the action plan for the establishment of backward and forward linkages in the present scenario

Methodology and Field VisitPreparation of the project report on export of food products and chemicals from India to Australia involved collection of Primary as well as Secondary data from published as well as unpublished sources. Since the project demanded for the complete study of the export promotion process of both to AUSTRALIA, a need of lot of data which is both primary as well as secondary data exists. The primary data is obtained from the sources like, Federation of Indian Export Organisation (FIEO) World Trade Centre (WTC) Basic Chemicals, Pharmaceuticals and Cosmetics Export Promotion Council (CHEMEXCIL) Australian Trade Commission Agricultural and Processed Food Products Exports Development Authority (APEDA) Parle G Factory, Ville Parle The Secondary data is collected from different sources like, Internet Australian Food Statistics Directorate of Agricultural, Food and Fisheries Journals and magazines related to chemical exports and imports Directory of World Chemical Producers Indian Industries and Trade Classifications

Research Process

The research task assigned was broadly divided into 2 categories-export promotion of Chemicals and Food Products. Therefore the researcher had the task to get the details on the exports of the same in the past few years. At the same time it was also necessary to find out the existing traders in this field. Therefore the researcher tried to search for the data by doing visits to the concerned organisations. The researcher first went to the organisations that could provide information regarding the export of chemicals. These were as followsBasic Chemicals, Pharmaceuticals and Cosmetics Export Promotion Council (CHEMEXCIL) World Trade Centre (WTC) Similarly for knowing the details regarding export of food products the researcher took details by visiting:  Federation of Indian Export Organisation (FIEO)  Agricultural and Processed Food Products Exports Development Authority (APEDA)  World Trade Centre (WTC)

ANALYSIS OF THE EXPORT OF CHEMICALS TO AUSTRALIA

The researcher was asked to collect available information on electroplating chemicals the company had decided to export. The chemicals so decided to be exported were: 1. Benzal Acetone 2. Benzylidene Acetone 3. Bis Benzene Sulphonimide 4. Cumene sulphonate Sodium 5. Hydroxyl Amine Hydrochloride 6. Pyridinium Hydroxy Sulphobetiane 7. Sodium Acetate Trihydrate Crystals 8. Xylene Sulphonate Sodium To go further about with the research, the HSC codes of the chemicals had to be found out. In order to get the HSC codes the researcher took help from the DGFT, Handbook of Procedures. DGFT, Handbook of procedures contains the list of all the items that are being exported from the country. The researcher faced difficulty while obtaining the HSC codes of some chemicals as they were not available in the list or categorised as others. Yet the researcher was successful in obtaining the HSC codes of some of the chemicals. After obtaining the HSC codes the researcher approached the office of CHEMEXCIL to obtain the details of exports and imports of the respective chemicals, the details of the traders engaged in the export of the same and the export trend of these chemiclas.

10

The researcher found that there were certain chemicals about which there were no details as NO EXPORTS of such chemicals took place in past three years. The details of the findings are listed as below:-

Name of chemicals
Benzal Acetone Benzylidene Acetone Bis Benzene Sulphonimide

HSC code
29143900 29143900 Not found 2904

Parties to be contacted
No details found No details found No details found
o Navdeep Chemicals Pvt. Ltd. o Sterling Auxilaries Pvt. Ltd. o Unisource Chemicals Pvt. Ltd.

Cumene sulphonate Sodium

Hydroxyl Hydrochloride Pyridinium Sulphobetiane

Amine 28251000

No details found

Hydroxy 39131000

o Alcatraz Chemicals

Sodium Acetate(Crystals)

29152200

(*) mentioned after table

o Apurva Chemicals

Xylene Sulphonate Sodium

27073000

o Navdeep Chemicals Pvt. Ltd. o S A Pvt. Ltd. o Nityassi Chemicals

11

(*) From t

availabl sources t ere was onl 1 chemical about which the details of exports l Its HSC code is 29152200.

were obtained. The chemical was Sodi

Ex ort of Sodi

Acetate (i quantity)

Ex ort of Sodium Acetate (in Rupees)

2006-07

689

0000000 90000000 80000000 70000000 60000000 0000000 40000000 30000000 20000000 0000000 0

366

2007-08

12

000000 4 00000 4000000 3 00000 3000000 2 00000 2000000 00000 000000 00000 0

2 27 2

2006-07

2007-08

926 0447

496680

2006-07 2007-08

2006-07 2007-08

As it is clear form the graph that the quantit of Sodium Acetate exported from India in the financial year 2006-07 was 25,27,152 kg and it increased by 96.5 % to 49,66,801 kg in the 2007-08. Also the revenue realised also registered a increased by 34.3% to Rs.9,26,50,447 in the financial year 2007-08.

Inference drawn
Viewing the growth in the export of the chemical the company has a scope of exportingthe chemical in future to Australia. Another important point inferred was that there has been no export of any chemical from India to Australia in the past year. Therefore the company thought of the scope to export these electroplating chemicals. As the export of these chemicals to Australia had not taken in the past, the company saw added advantage of exploiting the value of these exports and expected a marginal growth along the service it will provide. INDIAS E RTS FOR INORGANIC/ORGANIC AND AGRO CHE ICALS (IN Rs. Crores)

8600
8400 8200

8000 7726.5 7800

7600 7400

7200 2006 2007

13

2006

8584.5

2007

The exports of chemicals from India has registered a growth of 11.11% which in itself reveal the broad scope of the exports of chemicals from the country. Thus it can be clearly undersood that the export market is increasing in the country.

14

ANALYSIS OF THE EXPORT OF FOOD PRODUCTS TO AUSTRALIA

The company also wants to diversify its export activities by indulging its deals with food products. The company further concentrated on export of vegetarian processed food products as the range of food items is vast. Since the Australian people are very particular about the food, therefore a study about the Australian food was done.

The Australian Food Industry

Australias food industry encompasses a wide range of products. Today the food industry is a vital component of the Australian economy. Food accounts for 46 per cent of all retailing turnover in Australia, with total food and liquor retail spending in 200607 rising to $106.6 billion, an 8 per cent increase from the previous year. The industry makes a significant contribution to the economies of regional areas through employment, business and service opportunities. There were around 191, 400 people employed in food and beverage manufacturing in Australia in 200607. The processed food and beverage industry is Australias largest manufacturing industry with a turnover of more than $71.4 billion in 200506. Growth in the value of output has averaged around 2 per cent a year over the past ten years.

15

OVERVIEW OF THE FOOD PROCESSING INDUSTRY

Bakery products 12% 9% 2% 2% 6% 19% Beverage and malt manufacturing

Dairy products Flour mill and cereal food manufacturing 14% 25% 5% 6%
Oil and fat manufacturing

Fruit and vegetable processing

Meat and meat products

The food processing industry in Australia covers a number ofsectors

Name of the sector Bakery Products Beverage and malt manufacturing Dairy Products Flour mill and cereal food manufacturing Fruit and vegetable processing Meat and meat products il and fat manufacturing
16

Val e(i Rs.crore) 4005 13289 9991 3692 4672 17836 1547

Percentage 6 19 14 5 6 25 2

Sea food processing Sugar and confectionary manufacturing Other food manufacturing

1330 6456 8554

2 9 12

Although the value of Australias food imports increased by 10 per cent to around $9 billion, Australia remains a significant net exporter of food, with an export surplus of $14 billion over food imports in 2007-08. Over the past five years this surplus has averaged $18 billion a year in constant dollar terms. Net imports of processed fruit and vegetables increased by 25 per cent to $822 million and net imports of processed seafood increased by 9 per cent to $655 million in 2007-08.

17

After having the brief view about the Australian food industry , the company decided to export the following food items:-

LIST OF THE ITEMS

HICH ZEN INTRA TRADE INTENDS TO EXPORT TO AUSTRALIA

S.no. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Particulars Priya pickles(All variants,excepts Lemon & Garlic Pickle) Maggie Parle-G Haldiram( All Variants) Haldiram( All Variants) Haldiram( All Variants) Tez Mustard Oil Tez Mustard Oil Amul Ghee Amul Ghee Amul Ghee Sagar Ghee Sagar Ghee Dawat Deewaya Rice Dawat Deewaya Rice Dawat Deewaya Rice Thumps Up Can

Cases 10 each 100 100 10 each 10 each 5 each 20 20 100 50 20 50 20

eight 1 kg 720 g 825 g 200 g 350 g 1 kg 1 lit. 2 lit. 1 lit. 2 lit. 5 lit. 1 lit. 2 lit. 5 kg 10 kg 20 kg

100

Standard

18

18 19 20 21 22 23 24 25 26

Kurkure Masala Munch Kurkure rajasthani Lays (2 variety) India Gate Premium Basmati Rice India Gate Premium Basmati Rice India Gate Premium Basmati Rice Waghbakri Tea Waghbakri Tea Waghbakri Tea bags

20 20 20

Standard Standard Standard 5 kg 10 kg 20 kg 500 g 1 kg

In order to know the parties to be contacted for the procurement of the above products, the researcher went to APEDA where the following parties were being asked to contact for the same. The list of the parties in Mumbai is as follows:Food product Haldirams Parle-G Name of the party Mr. Ketki Ville parle office Contact details 9820025344 020-66916911/14

19

9848895566 Maggie 040-44363322 040-44363263 Amul ghee Tea board IOPEA(Oil) Mr. Peter Office Office 9322104204 020-22041699 020-22029295

The researcher was asked to find out how many packets one case of food items will contain. After the detailed survey it was found out that the number of packets in each case was completely the choice of the importer. It is the importer who is supposed to specify the number of packets he wants in one case.

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OPENING OFFICE IN AUSTRLIA

The company is expanding its business activities by entering into exports of food products to Australia. The company may have to increase its network in order to have smooth trade in future and therefore the company intends to open an office in Melbourne so that it serves two benefits. Firstly it would help in expansion of the network and secondly it would increase the awareness about the company and gradually will help in the brand building of the company. The researcher has therefore tried to enquire about the legal as well as administrative formalities to be followed for opening a subsidiary office in Australia. The researcher found that there are various formalities to be undergone. Among all , the regulations laid down by RBI are considered to be of prior importance. The regulations laid by RBI are as per the following circular issued by RBI:-

RBI/2009-10/21 Master Circular No. 01/2009-10 July 1, 2009 To, All Banks Authorised to Deal in Foreig n Exchange Madam / Sir,
Master Circular on Direct Investment by Residents Wholly Owned Subsidiary (WOS) Abroad in Joint Venture (JV)/

Direct investments by residents in Joint Ventu re (JV) and Wholly Owned Subsidiary (WOS) abroad are being allowed, in ter ms of clause (a) of sub-section (3) of section 6 of the Foreign Exchange Management Act 1999, (42 of 1999) read with FEMA Notification 120/RB-2004 dated July 7, 2004, (GSR 757 (E) dated November 19, 2004), viz. Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004, as amended from time to time.

21

2. This Master Circular consolidates the existing instructions on the subject of Direct Investment by Residents in Joint Venture (JV) / Wholly Owned Subsidiary (WOS) Abroad" at one place. The list of underlying circulars/notifications is furnished in the Appendix. 3. This Master Circular is issued with a sunset clause of one year. This circular will stand withdrawn on July 01, 2010 and be replaced by an updated Master Circular on the subject. Yours faithfully, (Salim Gangadharan) Chief General Manager-in-Char
INDEX

PART - I Section A General A.1 Introduction A.2 Statutory basis A.3 Prohibitions A.4 General Permission Section B - Direct Investment Outside India B.1 Automatic Route B.3 Method of Funding B.4 Capitalisation of exports and other dues B. 5. Investments in Financial Services Sector B. 6 Investment in Equity of Companies Registered Overseas / Rated Debt Instruments (1) (i) Portfolio Investments by listed Indian companies (ii) Investment by Mutual Funds B.7 Approval of the Reserve Bank B.8 Investments in energy and natural resources sector B.9 Overseas Investments by Proprietorship Concerns B. 10 Overseas investment by Registered Trust / Society B. 11 Post investment changes / additional investment in existing JV / WOS B.12 Acquisition of a foreign company through bidding or tender procedure
22

B.13 Obligations of Indian Entity B.14 Transfer by way of sale of shares of a JV / WOS B.15 Pledge of Shares of JV/WOS B.16 Hedging of Overseas Direct Investments SECTION C - Other Investments in Foreign Securities C.1 Permission for purchase/ acquisition of foreign securities in certain cases C.2 Pledge of a foreign security by a person resident in India C.3 General permission in certain cases PART - II Operational Instructions to Authorised Dealer Banks 1.Designated branches 2. Investments under Regulation 6 of Notification No. FEMA 120/2004 -RB dated July 7, 2004 3.General procedural instructions 4. Investments under Regulation 11 of Notification No. FEMA 120/2004 RB dated July 7, 2004 5. Allotment of Unique Identification Number (UIN) 6. Investment by way of share swap 7. Investments under Regulation 9 of Notification No. FEMA 120/2004 -RB dated July 7, 2004 8. Purchase of foreign securities under ADR / GDR linked Stock Option Scheme 9. Remittance towards Earnest Money Deposit or Issue of Bid Bond Guarantee 10. Transfer by way of sale of shares of a JV / WOS outside India 11. Verification of evidence of investment Annex - A Annex B Annex C Appendix

PART - I Section A General A.1 Introduction

23

(1) Overseas investments in Joint Ventures (JV) and Wholly Owned Subsidiaries (WOS) have been recognised as important avenues for promoting global business by Indian entrepreneurs. Joint ventures are perceived as a medium of economic co operation between India and othe r countries. Transfer of technology and skill, sharing of results of R&D, access to wider global market, promotion of brand image, generation of employment and utilisation of raw materials available in India and in the host country are other significant benefits arising out of such overseas investments. They are also important drivers of foreign trade through increased exports of plant and machinery and goods and services from India and also a source of foreign exchange earnings by way of dividend earnings, royalty, technical knowhow fee and other entitlements on such investments. (2) In keeping with the spirit of liberalisation, which has become the hallmark of economic policy in general, and Foreign Exchange regulations in particular, the Reserve Bank has been progressively relaxing the rules and simplifying the procedures both for current account as well as capital account transactions.
A.2 Statutory basis

(1) Section 6 of the Foreign Exchange Management Act, 1999 provides powers to the Reserve Bank to specify, in consultation with the Government of India the classes of permissible capital account transactions and limits up to which foreign exchange is admissible for such transactions. Section 6(3) of the aforesaid Act provides powers to the Reserve Bank to prohibit, restrict or regulate various transactions referred to in the sub-clauses of that sub-section, by making Regulations. (2) In exercise of the above powers, the Reserve Bank has in supersession of earlier Notification No.FEMA19/RB-2000 dated 3rd May 2000 and amendments thereto, issued Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004 vide Notification No. FEMA 120/RB-2004 dated July 7, 2004 (as amended vide Notification No. FEMA 132/2005 -RB dated 31st March 2005, Notification No. FEMA 135/ 2005-RB dated 17th May 2005 , Notification No. FEMA 139/2005-RB dated 11th August 2005, Notification No. FEMA 150/2006-RB dated 21st August 2006 , Notification No. FEMA 164/2007 -RB dated 9th October 2007, Notification No. FEMA173/2007-RB dated 19th December 2007, Notification No. FEMA 180/2008-RB dated 5th September 2008 and Notification No. FEMA181/2008-RB dated 1st October 2008(hereinafter referred to as the Notification). The Notification seeks to regulate acquisition and transfer of a foreign security by a person resident in India i.e. investment by Indian entities in o verseas joint ventures and wholly owned subsidiaries as also investment by a person resident in India in shares and securities issued outside India. Overseas Investment can be made under two routes viz. (i) Automatic Route outlined in paragraph B.1 and (ii) Approval Route outlined in paragraph B.7.
A.3 Prohibitions

Indian parties are prohibited from making investment in a foreign entity engaged in real estate (as defined in Regulation 2(p) * of the Notification) or banking business, without the prior approval of the Reserve Bank.
24

A.4 General Permission

In terms of Regulation 4 of the Notification, general permission has been granted to persons residents in India for purchase / acquisition of securities in the following manner: (a) out of funds held in RFC account; (b) as bonus shares on existing holding of foreign currency shares; and (c) when not permanently resident in India, out of their foreign currency resources outside India. General permission is also available to sell the shares so purchased or acquired. Section B - Direct Investment Outside India
B.1 Automatic Route

(1) In terms of Regulation 6 of the Notification, an Indian party has been permitted to make investment in overseas Joint Ventures (JV) / Wholly Owned Subsidiaries (WOS), not exceeding 400 per cent of the net worth of the Indian party as on the date of the last audited balance sheet. (2) The ceiling of 400 per cent of net worth will not be applicable where the investment is made out of balances held in Exchange Earners' Foreign Currency account of the Indian party or out of funds raised through ADRs/GDRs. The Indian party should approach an Authorised Dealer Category - I bank with an application in Form ODI (Annex A) and prescribed enclosures / documents for effecting remittances towards such investments. (3) The above ceiling will include contribution to the capital of the overseas JV / WOS, loan granted to the JV / WOS, and 100 per cent of guarantees issued to or on behalf of the JV/WOS. The investments are subject to the following conditions: a) The Indian entity may extend loan / guarantee to an overse as concern only in which it has equity participation. Indian entities may offer any form of guarantee corporate or personal / primary or collateral / guarantee by the promoter company / guarantee by group company, sister concern or associate company in India provided that: i) All financial commitments including all forms of guarantees are within the overall ceiling prescribed for overseas investment by the Indian party i.e. currently within 400 per cent of the net worth as on the date of the last audit ed balance sheet of the Indian party; ii) No guarantee is 'open ended' i.e. the amount and period of the guarantee should be specified upfront; and iii) As in the case of corporate guarantees, all guarantees are required to be reported to Reserve Bank, in Form ODI-Part II. Guarantees issued by banks in India in favour of WOSs / JVs outside India, would be outside this ceiling and would be subject to
25

prudential norms, issued by the Reserve Bank (DBOD) from time to time.
Note: Specific approval of the Reserve Bank will be required for creating charge on immovable property and pledge of shares of the Indian parent/ group companies in favour of a nonresident entity.

b) The Indian party should not be on the Reserve Banks Exporters' caution list / list of defaulters to the banking system circulated by the Reserve Bank / Credit Information Bureau (India) Ltd (CIBIL) / or any other credit information company as approved by the Reserve Bank or under investigation by any investigation / enforcement agency or regulatory body. c) All transactions relating to a JV / WOS should be routed through one branch of an Authorised Dealer bank to be designated by the Indian party. d) In case of partial / full acquisition of an existing foreign company, where the investment is more than USD 5 million, valuation of the shares of the company shall be made by a Category I Merchant Banker registered with SEBI or an Investment Banker / Merchant Banker outside India registered with the appropriate regulatory authority in the host country; and, in all other cases by a Chartered Accountant or a Certified Public Accountant. e) In cases of investment by way of swap of shares, irrespective of the amount, valuation of the shares will have to be made by a Category I Merchant Banker registered with SEBI or an Investment Banker outside India registered with the appropriate regulatory authority in the host country. Approval of the Foreign Investment Promotion Board (FIPB) will also be a prerequisite for investment by swap of shares. f) In case of investment in overseas JV / WOS abroad by a registered Partnership firm, where entire funding for such investment is done by the firm, it will be in order for individual partners to hold shares for and on behalf of the firm in the overseas JV / WOS if the host country regulations or operational requirements warrant such holdings. g) (i) Investments in JV/WOS abroad by Indian party through the medium of a Special Purpose Vehicle (SPV) are also permitted under the Automatic Route, subject to the conditions that the Indian party is not included in the Reserve Bank's Caution list or is under investigation by the Directorate of Enforcement or included in the list of defaulters to the banking system circulated by the Reserve Bank/any other Credit Information company as approved by the Reserve Bank. Indian parties whose names appear in the Defaulters' list require prior approval of the Reserve Bank for the investment. (ii) Setting up of an SPV overseas under the Automatic Route is permitted only for the purpose of investment in JV/WOS overseas. h) An Indian party may acquire shares of a foreign company engaged in a bonafide business activity, in exchange of ADRs/GDRs issued to the latter in accordance with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares
26

(through Depository Receipt Mechanism) Scheme, 1993, and the guidelines issued there under from time to time by the Government of India, provided: (i) ADRs/GDRs are listed on any stock exchange outside India;

(ii) The ADR and/or GDR issue for the purpose of acquisition is backed by underlying fresh equity shares issued by the Indian party; (iii) The total holding in the Indian entity by persons resident outside India in the expanded capital base, after the new ADR and/or G DR issue, does not exceed the sectoral cap prescribed under the relevant regulations for such investment under FDI; (iv) Valuation of the shares of the foreign company shall be

(a) as per the recommendations of the Investment Banker if the shares are not listed on any recognized stock exchange; or (b) based on the current market capitalisation of the foreign company arrived at on the basis of monthly average price on any stock exchange abroad for the three months preceding the month in which the acquisition is committed and over and above, the premium, if any, as recommended by the Investment Banker in its due diligence report in other cases. (4) The Indian Party is required to report such acquisition in form ODI to the AD Bank for submitting to the Reserve Bank within a period of 30 days from the date of the transaction.
Note: Investments in Nepal are permitted only in Indian rupees. Investments in Bhutan are permitted in Indian Rupees as well as in freely convertible currencies. All dues receivable on investments made in freely convertible currencies, as well as their sale / winding up proceeds are required to be repatriated to India in freely convertible currencies only. The automatic route facility is not available for investment in Pakistan. B.2 Investment in unincorporated entities overseas in oil sector under the Automatic Route

(1). Investments in unincorporated entities overseas in the oil sector (i.e. for exploration and drilling for oil and natural gas, etc.) by Navaratna PSUs, ONGC Videsh Ltd.(OVL) and Oil India Ltd.(OIL) may be permitted by AD Category - I banks, without any limit, provided such investments are approved by the competent authority. (2). Other Indian companies are also permitted under the Automatic Route to invest in unincorporated entities overseas in the oil sector up to 400 per cent of its net worth provided the proposal has been approved by the competent authority and is duly supported by certified copy of the Board resolution approving such investment. Investment in excess of 400 per cent of the net worth of an Indian company shall require prior approval of the Reserve Bank.
27

B.3 Method of Funding

(1). Investment in an overseas JV / WOS may be funded out of one or more of the following sources: i) drawal of foreign exchange from an AD bank in India; ii) capitalisation iii) swap of shares (valuation as of mentioned in para B.1 exports; (e) above);

iv) proceeds of External Commercial Borrowings (ECBs) / Foreign Currency Convertible Bonds (FCCBs); v) in exchange of ADRs/GDRs issued in accordance with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism) Scheme, 1993, and the guidelines issued thereunder from time to time by the Government of Ind ia; vi) balances held in EEFC account of the Indian party; and

vii) proceeds of foreign currency funds raised through ADR / GDR issues. In respect of (vi) and (vii) above, the ceiling of 400 per cent of the net worth will not apply. However, in respect of investments in the financial sector, they will be subject to compliance with Regulation 7 of the Notification ibid, irrespective of the method of funding. (2). General permission has been granted to persons resident in India for purchase / acquisition of securities in the following manner : (i) out of funds held in RFC account;

(ii) as bonus shares on existing holding of foreign currency shares; and (iii) when not permanently resident in India, out of their foreign currency resources outside India (para A.4 above)
B.4 Capitalisation of exports and other dues

(1). Indian party is permitted to capitalise the payments due from the foreign entity towards exports, fees, royalties or any other dues from the foreign entity for supply of technical know-how, consultancy, managerial and other services within the ceilings applicable. Capitalisation of export proceeds remaining unrealised beyond the prescribed period of realization will require prior approval of the Reserve Bank. (2). Indian software exporters are permitted to receive 25 per cent of the value of their exports to an overseas software start -up company in the form of shares without entering into Joint Venture Agreements, with prior approval of the Reserve Bank.

28

B. 5. Investments in Financial Services Sector

(1). In terms of Regulation 7 of the Notification, an Indian party seeking to make investment in an entity outside India, which is engaged in the financial sector should fulfill the following additional conditions: (i) be registered with the regulatory authority in India for conducting the financial sector activities; (ii) has earned net profit during the preceding three financial years from the financial services activities; (iii) has obtained approval from the regulatory authorities concerned both in India and abroad for venturing into such financial sector activity; and (iv) has fulfilled the prudential norms relating to capital adequacy as prescribed by the concerned regulatory authority in India. (2). Any additional investment by an exist ing JV/WOS or its step down subsidiary in the financial services sector is also required to comply with the above conditions. (3). Regulated entities in the financial sector making investments in any activity overseas are required to comply with the above guidelines. Unregulated entities in the financial services sector in India may invest in non financial sector activities subject to compliance with the provisions of Regulation 6 of the Notification. It is further clarified that trading in Commodities Exc hanges overseas and setting up JV/WOS for trading in overseas exchanges will be reckoned as financial services activity and require clearance from the Forward Markets Commission. B. 6 Investment in Equity of Companies Registered Overseas / Rated Debt Instruments
(1) (i) Portfolio Investments by listed Indian companies

Listed Indian companies are permitted to invest up to 50 per cent of their net worth as on the date of the last audited balance sheet in (i) shares and (ii) bonds / fixed income securities, rated not below investment grade by accredited / registered credit rating agencies, issued by listed overseas companies .
(ii) Investment by Mutual Funds

Indian Mutual Funds registered with SEBI are permitted to invest within an overall cap USD 7 billion in : i) ADRs / GDRs of the Indian and foreign companies;

ii) equity of overseas companies listed on recognised stock exchanges overseas ; iii) initial and follow on public offerings for listing at recognized stock exchanges overseas;
29

iv) foreign debt securities in the countries with fully convertible currencies, short term as well as long-term debt instruments with rating not below investment grade by accredited/registered credit agencies; v) money market instruments rated not below investment grade;

vi) repos in the form of investment, where the counterparty is rated not below investment grade. The repos should not, however, involve any borrowing of funds by mutual funds; vii) government securities where the countries are rated notbelow investment grad e; viii) derivatives traded on recognized stock exchanges overseasonly for hedging and portfolio balancing with underlying as securities; ix) short-term deposits with banks overseas where the issuer is rated not below investment grade; and x) units / securities issued by overseas Mutual Funds or Unit Trusts registered with overseas regulators and investing in (a) aforesaid securities, (b) Real Estate Investment Trusts (REITS) listed on recognized stock exchanges overseas, or (c) unlisted overseas securities (not exceeding 10 per cent of their net assets). (2). A limited number of qualified Indian Mutual Funds, are permitted to invest cumulatively up to USD 1 billion in overseas Exchange Traded Funds as may be permitted by SEBI. (3). Domestic Venture Capital Funds registered with SEBI may invest in equity and equity linked instruments of off -shore Venture Capital Undertakings, subject to an overall limit of USD 500 million. Mutual Funds / Venture Capital Funds desirous of availing of this facility may ap proach SEBI for necessary permission. (4). General permission is available to the above categories of investors for sale of securities so acquired.
B.7 Approval of the Reserve Bank

(1). Prior approval of the Reserve Bank would be required in all other cases of direct investment abroad. For this purpose, application together with necessary documents should be submitted in Form ODI through their Authorised Dealer Category I banks. (2). Reserve Bank would, inter alia, take into account the following fa ctors while considering such applications: a) Prima facie viability of the JV / WOS outside India;

b) Contribution to external trade and other benefits which will accrue to India through such investment;
30

c) Financial position and business track record of the Indian party and the foreign entity; and d) Expertise and experience of the Indian party in the same or related line of activity of the JV / WOS outside India.
B.8 Investments in energy and natural resources sector

Reserve Bank will consider applications for investment in JV/WOS overseas in the energy and natural resources sectors (e.g. oil, gas, coal and mineral ores) in excess of 400 per cent of the net worth of the Indian companies as on the date of the last audited balance sheet. AD Category - I banks may forward such applications from their constituents to the Reserve Bank as per the laid down procedure.
B.9 Overseas Investments by Proprietorship Concerns

(1) With a view to enabling recognized star exporters with a proven track record and a consistently high export performance to reap the benefits of globalization and liberalization, proprietorship concerns and unregistered partnership firms are allowed to set up JVs / WOS outside India with the prior approval of the Reserve Bank subject to satisfying certain eligibility criteria. An application in form ODI may be made to the Chief General Manager, Reserve Bank of India, Foreign Exchange Department, Overseas Investment Division, Central Office, Amar Building, 5th Floor, Fort, Mumbai 400 001, through the AD Category - I bank. AD Category - I banks may forward the applications to the Reserve Bank along with their comments and recommendations, for consideration. (2). Investments by established proprietorship or unregistered partnership exporter firms will be subject to the following conditions: i) The Partnership / Proprietorship firm is a DGFT recognized Star Export House. ii) The AD Category I bank is satisfied that the exporter is KYC (Know Your Customer) compliant and is engaged in the pr oposed business and meets the requirement as indicated at i) above. iii) Exporter has proven track record i.e. overdue exports do not exceed 10 per cent of the average export realization of preceding three financial years. iv) The exporter has not come under adverse notice of any Government agency like Directorate of Enforcement, CBI and does not appear in the exporters' caution list of the Reserve Bank or in the list of defaulters to the banking system in India. v) The amount of investment outside India does not exceed 10 per cent of the average of three financial years export realization or 200 per cent of the net owned funds of the firm, whichever is lower.
B. 10 Overseas investment by Registered Trust / Society

31

Registered Trusts and Societies engaged in manufacturing / educational / hospital sector are allowed to make investment in the same sector(s) in a JV/WOS outside India, with the prior approval of the Reserve Bank. Trusts / Societies satisfying the eligibility criteria, as indicated below, may su bmit the application/s in Form ODI-Part I, through their AD Category - I bank/s, to the Chief General Manager, Reserve Bank of India, Foreign Exchange Department, Overseas Investment Division, Central Office, Amar Building, 5th Floor, Fort, Mumbai 400 001, for consideration. Eligibility Criteria : (a) Trust i) The Trust should be registered under the Indian Trust Act, 1882; ii) The Trust deed permits the proposed investment overseas; iii) The proposed investment should be approved by the trustee/s; iv) The AD Category I bank is satisfied that the Trust is KYC (Know Your Customer) compliant and is engaged in a bonafide activity; v) The Trust has been in existence at least for a period of three years; vi) The Trust has not come under the adverse notice o f any Regulatory / Enforcement agency like the Directorate of Enforcement, Central Bureau of Investigation (CBI), etc. (b) Society i) The Society should be registered under the Societies Registration Act, 1860. ii) The Memorandum of Association and rules and regulations permit the Society to make the proposed investment which should also be approved by the governing body / council or a managing / executive committee. iii) The AD Category - I bank is satisfied that the Society is KYC (Know Your Customer) compliant and is engaged in a bonafide activity; iv) The Society has been in existence at least for a period of three years; v) The Society has not come under the adverse notice of any Regulatory / Enforcement agency like the Directorate of Enforcement, CB I etc. In addition to the registration, the activities which require special license / permission either from the Ministry of Home Affairs, Government of India or from the relevant local authority, as the case may be, the AD Category I bank should ensure that such special license / permission has been obtained by the applicant. B. 11 Post investment changes / additional investment in existing JV / WOS
32

A JV / WOS set up by the Indian party as per the Regulations may diversify its activities / set up step down subsidiary / alter the shareholding pattern in the overseas entity (subject to compliance of Regulation 7 of the Notification in the case of financial services sector companies). The Indian party should report to the Reserve Bank through the AD Category - I bank, the details of such decisions within 30 days of the approval of those decisions by the competent authority of the JV / WOS concerned in terms of local laws of the host country, and include the same in the Annual Performance Report (APRPart III of form ODI) required to be forwarded to the AD Category -I bank. B.12 Acquisition of a foreign company through bidding or tender procedure An Indian party may remit earnest money deposit or issue a bid bond guarantee for acquisition of a foreign company through bidding and tender procedure and also make subsequent remittances t hrough an AD Category - I bank, in accordance with the provisions of Regulation 14 of the Notification.
B.13 Obligations of Indian Entity

(1). An Indian party which has made direct investment abroad is under obligation to (a) receive share certificate or any other document as an evidence of investment, (b) repatriate to India the dues receivable from foreign entity, and (c) submit the documents / Annual Performance Report to the Reserve Bank, in accordance with the provisions specified in Regulation 15 of the Notification. The share certificate or any other document as evidence of investment has to be submitted to and retained by the designated AD Category - I bank, who is required to monitor the receipt of such documents and satisfy themselves about the bonafides of the documents. A certificate to this effect should be submitted by the designated AD category I bank to the Reserve Bank alongwith the APR (Part III of Form ODI) . (2). Reporting requirements including submission of Annual Performance Report are also applicable for investors in unincorporated entities in the oil sector.
B.14 Transfer by way of sale of shares of a JV / WOS

(1) Indian parties may also disinvest without prior approval of the Reserve Bank, in any of the under noted categories: i) in case where the JV / WOS is listed in the overseas stock exchange; ii) in cases where the Indian promoter company is listed on a stock exchange in India and has a net worth of not less than Rs.100 crore; and iii) where the Indian promoter is an unlisted company and the investment in the overseas venture does not exceed USD 10 million. (2).The disinvestment shall be subject to the following conditions:

(i) the sale does not

result in any write-off of the investment made;

33

(ii) the sale is effected through a stock exchange where the shares of the overseas JV/ WOS are listed; (iii) if the shares are not listed on the stock exchange and the shares are disinvested by a private arrangement, the share price is not less than the value certified by a Chartered Accountant / Certified Public Accountant as the fair value of the shares based on the latest audited financial statements of the JV / WOS; (iv) the Indian party does not have any outstanding dues by way of dividend, technical know-how fees, royalty, consultancy, commission or other entitlements, and / or export proceeds from the JV or WOS; (v) the overseas concern has been in operation for at least one full year and the Annual Performance Report has been submitted to the Reserve Bank; and (vi) the Indian party is not under investigation by CBI / DOE/ SEBI / IRDA or any other regulatory authority in India. The Indian entity is required to submit details of the disinvestment through its designated AD Category I bank within 30 daysfrom the date of disinvestment. An Indian party, which does not satisfy the conditions laid down, shall have to apply to the Reserve Bank for prior permission.
B.15 Pledge of Shares of JV/WOS

An Indian party may pledge the shares of JV / WOS to an AD Category I bank or a public financial institution in India for availing of any credit facility for itself or for the JV / WOS abroad in terms of Regulation 18 of the Notification. Indian party may also transfer by way of pledge, the shares held in overseas JV/WOS, to an overseas lender, provided the lender is regulated and supervised as a bank and the total financial commitments of the Indian party remain within the limit stipulated by the Reserve Bank for overseas investments, from time to time. B.16 Hedging of Overseas Direct Investments (1). Resident entities having overseas direct investments are permitted to hedge the foreign exchange rate risk arising out of such investments. AD Category - I banks may enter into forward / option contracts with resident entities who wish to hedge their overseas direct investments (in equity and loan), subject to verification of such exposure. Cancellation of such forward contracts may be permitted by AD Category I banks and 50 per cent of such cancelled contracts may be allowed to be rebooked. (2). If a hedge becomes naked in part or full owing to shrinking of the market value of the overseas direct investment, the hedge may continue to the original maturity. Rollovers on the due date are permitted up to the extent of market value as on that date. SECTION C - Other Investments in Foreign Securities
C.1 Permission for purchase/ acquisition of foreign securities in certain cases
34

General permission has been gr anted to a person resident in India who is an individual a) to acquire foreign securities as a gift from any person resident outside India; b) to acquire shares under cashless Employees Stock Option Programme (ESOP) issued by a company outside India, provided it does not involve any remittance from India; c) to acquire shares by way of inheritance from a person whether resident in or outside India; d) to purchase equity shares offered by a foreign company under its ESOP Schemes, if he is an employee, or, a director of an Indian office or branch of a foreign company, or, of a subsidiary in India of a foreign company, or, an Indian company in which foreign equity holding, either direct or through a holding company/Special Purpose Vehicle (SPV), is not less than 51 per cent. AD Category I banks are permitted to allow remittances for purchase of shares by eligible persons under this provision irrespective of the method of operationalisation of the scheme i.e where the shares under the scheme are offere d directly by the issuing company or indirectly through a trust / a Special Purpose Vehicle (SPV) / step down subsidiary, provided (i) the company issuing the shares effectively, directly or indirectly, holds in the Indian company, whose employees / direct ors are being offered shares, not less than 51 per cent of its equity, (ii) the shares under the ESOP Scheme are offered by the issuing company globally on a uniform basis, and (iii) an Annual Return (Annex B) is submitted by the Indian company to the Rese rve Bank through the AD Category I bank giving details of remittances / beneficiaries, etc. A person resident in India may transfer by way of sale the shares acquired as stated above provided that the proceeds thereof are repatriated immediately on rec eipt thereof and in any case not later than 90 days from the date of sale of such securities. e) Foreign companies are permitted to repurchase the shares issued to residents in India under any ESOP Scheme provided (i) the shares were issued in accordance with the Rules / Regulations framed under Foreign Exchange Management Act, 1999, (ii) the shares are being repurchased in terms of the initial offer document, and (iii) An annual return is submitted through the AD Category I bank giving details of remittances / beneficiaries, etc. f) In all other cases, not covered by general or special permission, approval of the Reserve Bank is required to be obtained before acquisition of a foreign security. C.2 Pledge of a foreign security by a person resident in India The shares acquired by persons resident in India in accordance with the provisions of Foreign Exchange Management Act, 1999 or Rules or Regulations made thereunder are allowed to be pledged for obtaining credit facilities in India from an AD Category I bank / Public Financial Institution.

35

C.3 General permission in certain cases Residents are permitted to acquire a foreign security, if it represents

a) qualification shares for becoming a director of a company outside India provided it does not exceed 1 per cent of the paid up capital of the overseas company and the consideration for the acquisition does not exceed USD 20,000 in a calendar year; b) rights shares provided that the rights shares are being issued by virtue of holding shares in accordance with the provisions of law for the time being in force; c) purchase of shares of a JV / WOS abroad of the Indian promoter company by the employees/directors of Indian promoter company which is engaged in the field of software where the consideration for purchase does not exceed USD 10,000 or its equivalent per employee in a block of five calendar years; the shares so acquired do not exceed 5 per cent of the paid -up capital of the JV / WOS outside India; and after allotment of such shares, the percentage of shares held by the Indian promoter company, together with shares allotted to its employees is not less than the percentage of shares held by the Indian promoter company prior to such allotment; and d) purchase of foreign securities under ADR / GDR linked stock option schemes by resident employees of Indian companies in the knowledge based sectors, including working directors provided purchase consideration does not exceed USD 50,000 or its equivalent in a block of five calendar years.
PART - II Operational Instructions to Authorised Dealer Banks 1.Designated branches

An eligible Indian party making investment in a Joint Venture (JV) / Wholly Owned Subsidiary (WOS) outside India is required to route all its transactions relating to the investment through one branch of an AD Category I bank designated by it in terms of clause (v) of sub regulation 2 of Regulation 6 of the notification. All communications from the Indian parties, to the Reserve Bank, relating to the investment outside India should be routed through the same branch of the AD Category I bank that has been designated by the Indian investor for the investment. The designated AD Category I bank while forwarding the request from their customers to the Reserve Bank, should also forward its comments / recommendations on the request. However, the Indian party may designate different AD Category I banks / branches of AD Category I banks for different JV / WOS outside India.For proper follow up, the AD Category I bank is required to maintain party-wise record in respect of each JV/ WOS.
2. Investments under Regulation 6 of Notification No. FEMA 120/2004-RB dated July 7, 2004

36

AD Category I banks may allow investments up to the permissible limits on receipt of application in form ODI together with form A -2, duly filled in, from the Indian party(ies) making investments in a JV/WOS abroad subject to their complying with the conditions specified in Regulation 6 of Notification FEMA No.120/RB-2004 dated July 7, 2004, as amended from time to time. Investment in financial services should also comply with the norms stipulated at Regulation 7 o f the Notification ibid. While forwarding the report of remittance in respect of investment in financial services sector, AD Category I banks may certify that prior approvals from the Regulatory Authorities concerned in India and abroad have been obtain ed. Before allowing the remittance, AD Category I banks are required to ensure that the necessary documents, as prescribed in form ODI, have been submitted and found to be in order. 3. General procedural instructions (1) With effect from June 01, 2007, reporting system for overseas investment has been revised. All the earlier forms have been subsumed into one form viz. ODI, comprising of four parts:
Part I-

includes

the

following:

Section A Details of the Indian Party Section B Details of Investment in New Project Section C Details of Investment in Existing Project Section D Funding for JV / WOS Section E Declaration by the Indian Party (to be retained by AD Category I bank) Section F - Certificate by the Statutory Auditors of the India n Party (to be retained by AD Category I bank)
Part Part III II -

Reporting Annual Performance

of Report

Remittances (APR)

Part IV Report on Closure/Disinvestment/Voluntary Liquidation/Winding up of JV / WOS

(2) The revised form is only a rationalisation of the reporting procedure and there is no change or dilution in the existing eligibility criteria / documentation / limits. Soon these reports will be received on line by Reserve Bank. (3) AD Category I banks may take action as under:

a) In cases of Automatic Route Parts I and II of form ODI should be submitted to the Chief General Manager, Reserve Bank of India, Foreign Exchange Department, Overseas Investment Division, Amar Bldg. 5th floor, Sir P. M. Road, Fort, Mumbai 400001. b) In case of Approval Route Part I of form ODI, along with the supporting documents, is required to be submitted after scrutiny and with specific recommendations by the designated AD Category - I bank, at the address mentioned
37

above. In case the proposal is approved , Part I will be returned by the Reserve Bank to the AD Category - I bank. After effecting the remittance, the AD Category I bank should resubmit the same to the Reserve Bank along with Part II of form ODI. c) In case of disinvestment / closure / winding up / voluntary liquidation under the Automatic Route, in terms of A. P. (Dir Series) Circular No. 29 dated March 27, 2006, a report should be submitted by the designated AD Ca tegory - I bank, in Part IV of form ODI. In all other cases of disinvestment, an application along with the necessary supporting documents should be submitted to the Reserve Bank as per the existing procedure. (4). In cases where the investment is being made jointly by more than one Indian party, form ODI is required to be signed jointly by all the investing entities and submitted to the designated branch of the AD Category I bank. AD Category I banks should forward to the Reserve Bank a consolidated fo rm ODI indicating details of each party. The same procedure should be followed where the investment is made out of the proceeds of ADR / GDR issues of an Indian party in terms of Regulation 6(5) of the Notification. The Reserve Bank would allot only one U nique Identification Number to the overseas project. (5). AD Category I banks should allow remittance towards loan to the JV / WOS and / or issue guarantee to / on behalf of the JV / WOS abroad only after ensuring that the Indian party has an equity stak e in the JV / WOS.
4. Investments under Regulation 11 of Notification No. FEMA 120/2004-RB dated July 7, 2004

In terms of Regulation 11 of the Notification , Indian parties are permitted to make direct investment in JV / WOS abroad by way of capitalisation of exports or other dues/entitlements like royalties, technical know -how fees, consultancy fees, etc. In such cases also, the Indian party is required to submit details of the capitalisation in form ODI to the designated branch of the AD Category I bank. Such investments by way of capitalisation are also to be reckoned while computing the cap of 400 per cent prescribed in terms of Regulation 6. Further, in cases where the export proceeds are being capitalised in accordance with the provisions of Regulation 11, the AD Category I banks are required to obtain a custom certified copy of the invoice as required under Regulation 12(2) and forward it to the Reserve Bank together with the revised form ODI. Capitalisation of export proceeds or other entitlements, which are overdue, would require prior approval of the Reserve Bank for which the Indian parties should make an application in form ODI to the Reserve Bank for consideration.
5. Allotment of Unique Identification Number (UIN)

On receipt of the form ODI from the AD Category I bank, the Reserve Bank will allot a Unique Identification Number to each JV or WOS abroad, which is required to be quoted in all correspondence with th e Reserve Bank. AD Category I banks may allow additional investment in an existing overseas concern set up by an Indian party, in terms of Regulation 6 only after the Reserve Bank has allotted necessary Unique Identification Number to the overseas projec t.
38

6. Investment by way of share swap

In the case of investment by way of share swap, AD Category I banks are additionally required to submit to the Reserve Bank the details of transactions such as number of shares received / allotted, premium paid / rec eived, brokerage paid / received etc., and also confirmation to the effect that the inward leg of transaction has been approved by FIPB and the valuation has been done as per laid -down procedure and that the overseas companys shares are issued / transferr ed in the name of the Indian investing company. AD Category I bank may also obtain an undertaking from the applicants to the effect that future sale / transfer of shares so acquired by Non-Residents in the Indian company shall be in accordance with the provisions of Notification No. FEMA 20/2000 -RB dated May 3, 2000 as amended from time to time.
7. Investments under Regulation 9 of Notification No. FEMA 120/2004-RB dated July 7, 2004

In terms of Regulation 9, investment in JV / WOS in certain cases requires prior approval of the Reserve Bank. AD Category I banks may allow remittances under these specific approvals granted by the Reserve Bank and report the same to the Chief General Manager, Foreign Exchange Department, Central Office, Overseas Investment Division, Amar Building, 5th floor, Mumbai 400 001 in form ODI.
8. Purchase of foreign securities under ADR / GDR linked Stock Option Scheme

AD Category I banks may make remittances up to USD 50,000 or its equivalent in a block of five calendar years, without the prior approval of the Reserve Bank, for purchase of foreign securities in the knowledge based sector under the ADR / GDR linked ESOPs, after satisfying that the issuing company has followed the relevant guidelines of SEBI / Government.
9. Remittance towards Earnest Money Deposit or Issue of Bid Bond Guarantee

(i) In terms of Regulation 14 of the No tification, AD Category I banks may, on being approached by an Indian party which is eligible for investment under Regulation 6, allow remittance towards Earnest Money Deposit (EMD) to the extent eligible after obtaining Form A2 duly filled in or may iss ue bid bond guarantee on their behalf for participation in bidding or tender procedure for acquisition of a company incorporated outside India. On winning the bid, AD banks may remit the acquisition value after obtaining Form A2 duly filled in and report such remittance (including the amount initially remitted towards EMD) to the Chief General Manager, Foreign Exchange Department, Central Office, Overseas Investment Division, Amar Building, 5th floor, Mumbai 400 001 in form ODI. AD Category I banks, while permitting remittance towards EMD should advise the Indian party that in case they are not successful in the bid, they should ensure that the amount remitted is repatriated in accordance with Foreign Exchange Management (Realisation, Repatriation & Sur render of Foreign Exchange) Regulations, 2000 (cf. Notification No. FEMA 9/2000-RB dated 3rd May 2000) as amended from time to time

39

(ii) In cases where an Indian party, after being s uccessful in the bid / tender decides not to proceed further with the investment, AD banks should submit full details of remittance allowed towards EMD / invoked bid bond guarantee, to the Chief General Manager, Foreign Exchange Department, Central Office, Overseas Investment Division, Amar Building, 5th floor, Mumbai 400 001. (iii) In case the Indian party is successful in the bid, but the terms and conditions of acquisition of a company outside India are not in conformity with the provisions of Regulations in Part I, or different from those for which approval under sub -regulation (3) was obtained, the Indian entity should obtain approval from the Reserve Bank by submitting form ODI.
10. Transfer by way of sale of shares of a JV / WOS outside India

The Indian party should report details of the disinvestment through the AD Category I bank within 30 days of disinvestment in Part IV of the Form ODI as indicated in para 3 (3) (c) above. Sale proceeds of shares / securities shall be repatriated to India immediately on receipt thereof and in any case not later than 90 days from the date of sale of the shares / securities.
11. Verification of evidence of investment

The share certificates or any other document as evidence of investment, where share certificates are not issued shall, henceforth, be submitted to and retained by the designated AD Category I bank, who would be required to monitor the receipt of such documents and satisfy themselves about the bonafides of the documents so received. A certificate to this effect should be submitted by the designated AD Category I bank to the Reserve Bank along with the APR (Part III of Form ODI).

40

The researcher found out that in addition to the regulations laid by RBI, there are certain regulations that are to be undertaken by the company in Australia. Since the company intends to open the subsidiary office in Melbourne the researcher precisely found out the details to open an office in Melbourne.

Business Start-Up
Before applying for business migration, one will need to research and plan how to establish business in Victoria. The application to the Victorian Government for visa sponsorship requires evidence of this research.

Victoria is well resourced to help people get a business up and running.

Starting a new business Starting a new business is an exciting but often challenging endeavour. A need to plan and research carefully is there to give the business its best possible chance at success. Some of the things to think about include:

y y y y y y y y

Are you ready to take full responsibility for all aspects of the business? Are you experienced at running a business? Does your experience include a business like the one you want to start? Is your business idea a good one? What competition will you face? What obstacles will you need to overcome to succeed? What costs and profits to do you expect? Where will you base your business to increase its chances of success?

41

y y y y

Who will your customers be? How will you reach them? Who will your suppliers be? How will you find them? Will you need staff? Where and how will you find good people to join your team? Have you taken care of all the legal and regulatory essentials involved in running a business generally, and running your business particularly? Business Registration Register your business name In Victoria, the names of all business are required to be registered with Consumer Affairs Victoria, except those that involve a single person trading under their own name, for example, Jane Citizen. If one adds anything to ones own name, though, one must register it, for example, Jane Citizen Services.

This is so that a public record can be kept of who owns what businesses. Some banks will require that a business name be registered before they will open any business accounts for firm opener.

Business name registration costs $79.50, and then costs $56.80 each year to maintain. Consumer Affairs Victoria provides information about registering a business name, including:

y y y y y

how to register a business name what restrictions exist what your responsibilities are how to update, renew or cancel a registration the fees and charges involved.
42

Register your business As well as registering the business name, one should also register the business with the Australian Business Register.

Once registered, one will be given an Australian Business Number (ABN), which is a unique number that will identify the party when they deal with the Australian Tax Office and other bodies.

Although getting an ABN is not compulsory unless one is going to register for the Goods and Services Tax, many banks, suppliers and customers will not deal with the party unless the party have one, because it makes their own tax requirements much harder to manage.

Banking & Ta es For Business Banking Most banks offer business products, such as business accounts, cheque accounts, business loans and overdrafts. Products, fees and charges, and interest rates will differ from bank to bank, so it's worth shopping around before its decided who to approach.

Before approaching the bank, however, one should register the business name and have obtained an ABN - this will make the process of getting set up much easier.

Ta es The Australian tax year runs from 1 July to 30 June. Once the party has the Australian Business Number or ABN, one may need to register with the Australian Tax Office for certain tax payments. These include:

43

y y y y

Goods and Services Tax Fringe Benefits Tax Pay As You Go withholding Payroll tax

Victorian Business Centres One can also telephone the Victorian Business Line within Australia on 13 22 15 or international on +61 3 9651 8100. Alternatively, or can visit one of the 12 Victorian Business Centres (VBCs) in Melbourne and across regional Victoria that offer support to small businesses. These centres offer over-the-counter advice on the following services:

y y y y y

starting a business, including licensing and registration buying an existing business referrals to other government and business providers organising and distributing local business and economic growth programs workshops and seminars on business topics

44

Procedure adopted for a Standardized company

Legal Form: Proprietary Company (Pty Ltd) City: Sydney

Registration Requirements Summary:

Procedure
C mp e e e ASIC F m 201 App c s A s Re s C mp y"; ce c e c p c mp y m e A s (ACN) Re s e A s (AT ) ABN w h he T x ce
                                                     

Time to complete
1 y

Cost to complete
AU 400

Registration Requirements Details

PROCEDURE 1 Comment: The company must complete and submit form 201 Co Application for Registration as an Australian

company ,along with the prescribed fee of AUD 400 when registering a proprietary limited company. To complete the application, the company must indicate the Australian state or territory in which it will be registered and whether it will rely entirely on the replaceable rules or a constitution. The company should also provide the following details: the proposed corporate name (if any)*, the corporate type and class, the location of the registered office, principal place of business in Australia,the identity of the ultimate holding company (known as the parent company), officeholders (of which on director must be an Australian resident, and, if any are appointed,

45



N ch

 



one company secretary must be an Australian resident), the share structure, and the shareholders and their shareholdings. A company may adopt its own constitution with the consent of all company members. Moreover, the applicant, a company member, or a person who has consented to become a director or secretary or by the applications agent with the requisite authority must sign form 201.Once form 201 has been completed and the directors and secretary (if any) have consented to be officeholders, the form 201 can be lodged with the Australian Securities and Investment Commission (ASIC). Before submitting ASIC form 201, applicants should check with ASIC on the availability of their proposed company name.

Once the 201 form is lodged with ASIC electronically and the companys name is acceptable an Australian Company Number (ACN) becomes available, the ASIC provides the company with an Australian Company Number (ACN), registers the company on the ASIC database and issue the company a certificate of registration electronically and a copy will be mailed.

PROCEDURE 2 Comment: this procedure is required under the Income Tax Assesment Act 1936 and a new tax system ( Goods and Services Tax) act of 1999. Depending on the company circumstances and location, it must comply with different taxation requirements: - If the annual company turnover is AUD$75,000 or more, the company must register for Goods and Services Tax (GST) by obtaining an 11-digit Australian Business Number (ABN). The annual company turnover represents its gross business income (not its profit). Companies with lower annual turnover may also choose to register for the Goods and Services Tax.

46

An application for an ABN can be submitted electronically at the Business Entry Point, www.abr.business.gov.au. Otherwise, the application may be submitted by hard copy to the (ATO). If electronic submission is successful, the applicant will be provided with an ABN at the end of the Internet session. The ATO will also mail the ABN within 28 days of receipt of the application. -The company must deduct tax from employee pay, provide payment summaries, contribute to employee superannuation, and report and issue payments to the ATO. Companies may also register for Pay As You Go (PAYG) at www.abr.gov.au. Otherwise, they may register with the ATO by postal mail or phone or through a tax agent. State and territory taxes (e.g., stamp duty, payroll tax, and land tax) may also be imposed, with requirements differing according to company location. - Companies with annual turnover of AUD$75,000 or more must register for an ABN. Failure to do so will result in GST being levied on all company sales since the required date of registration even if the sale price of any goods or services has not been grossed up to include the tax. Furthermore, the company may incur penalties and interest charges for any overdue payments.

47

Inference drawn on exports of food products

Indias Exports of food products to Australia(in %age)

3
3 2.5

2 2
1990-91

1.5 1 0.5 0
1990-91 2005-06 2006-07

2005-06 2006-07

From the above data it can be inferred that the Australian market is yet to be exploited by the Indian exporters as the export contribution is just 3%. It is clearly a lucrative market that can be exploited. Therefore the company has bright chances to broaden its export activities in Australia. The products that the company has specified is a list of 26 items that comes under the category of processed food products to be exported to Australia. In order to understand the existing trend of trade and also the statistics regarding the exports of food products by India and the imports by Australia it was a necessary for the researcher to avail the data from the concerned organisation and the same was obtained from APEDA.

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The following statistics were obtained:-

 Indias principal export destinations of 2009 were as follows:-

Name of the country United Arab Emirates United States China Australia

Rank 1 2 3 29

Percentage of Total E ports 12.6% 11.1% 6% 0.8%

 Indias goods and services contribution to the Indian GDP has been increasing year on year. Thus there is a scope for the company to increase its exports to Australia.

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FINDINGS, CONCLUSION AND RECOMMENDATIONS

FINDINGS
The research helped the researcher in discovering certain new findings. Some of them are being listed as follows:India and Australia have a good scope of trade with each other Since the GDP of India is growing it provides a green signal for the exports to other countries. There have been fewer exports of chemicals to Australia as compared to other countries from India in the past 3 years. Exports of food products under the processed food category are going to increase the profits of the company. Since imports from India in Australia is 1.2% as of 2009, therefore more of exports to Australia will not only benefit the company but will also help in the development of the economy of the nation. The study finds that a comprehensive FTA covering goods, services and investment between Australia and India could lead to a substantial increase in the trade in goods, and that there is further potential in services trade, and considerable scope for enhanced investment links.

y y

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CONCLUSION
Strike the iron when it is hot. As the saying goes, similar is the case for Indian exports. Since the exports from India are increasing at a good pace it will be profitable for Zen Intratrade Pvt. Ltd. to increase the exports of chemicals and food products from India to other countries including Australia (which is the country in which the company has already planned to start business.). The plan of company opening an office in Australia is going to yield sweet fruits for the company in future as the Indo Aus free trade pact is going to open more doors of trade between India and Australia. Thus it can be concluded that the company has a bright scope of growth in future by expansion of it trade activities and exports to Australia.

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RECOMMENDATIONS

Australia s trade with India

Since the trend of exports and imports between India and Australia clearly reveal that Indias exports have been increasing at a good pace, therefore the company has a good scope of exports of food products to Australia. The GDP growth rate of India as of now is 7.4% as compared to the expected growth rate of 8%. Therefore it can be concluded that there is a possibility of more of Indian exports. Since company is a new player in the export market therefore it should try to target those countries (in addition to Australia) where the company can incur more profit The two golden rules for successful development of this export sector are to ensure
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consistency in supply and provide recorded and demonstrated traceability of products Thus, procurement strategies are the most crucial in strategy development. Procurement strategy should be designed based on financial resources, managerial skills and entrepreneurial capacity

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Appendi
www.zenintratrade.com

www.infodriveindia.com www.daff.gov.au www.austrade.gov.au www.google.com www.rbi.org.in www.wikipedia.org

www.utsavaustralia.in

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